When Is a CSR Committee Mandatory? Section 135 Thresholds, ₹50 Lakh Exception and Unspent CSR Rule

A company can be subject to corporate social responsibility under Section 135 without always needing a separate CSR Committee. The practical question is therefore not only whether Section 135 applies, but whether the committee itself must exist for the financial year. The answer depends on three linked tests: the Section 135(1) applicability thresholds, the amount the company is required to spend under Section 135(5), and whether any amount remains in the Unspent Corporate Social Responsibility Account under Section 135(6).

ICSI’s current Section 135 text and its current CSR Rules page for Rule 3 provide the statutory framework for this decision.

Step 1: test whether Section 135 applies

Section 135(1) applies where, during the immediately preceding financial year, a company had any one of the following: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Meeting any one threshold is enough to bring the company into the Section 135 framework, subject to applicable exemptions or modifications.

This threshold test should be performed separately from the committee test. A company may cross a Section 135 threshold but still fall within the statutory exception under which the Board performs the CSR Committee’s functions.

Step 2: calculate the CSR amount to be spent

Under Section 135(5), the Board must ensure that the company spends at least two per cent of the average net profits made during the three immediately preceding financial years. Where the company has not completed three financial years since incorporation, the calculation uses the immediately preceding financial years that are available. The statutory net-profit concept for Section 135 is linked to Section 198 and should not be replaced by a casual accounting-profit shortcut.

The result of this calculation matters because Section 135(9) creates a specific committee exception based on the amount required to be spent, not merely on whether the company crossed the net-worth, turnover or net-profit threshold.

Step 3: apply the ₹50 lakh CSR Committee exception

Section 135(9) states that where the amount to be spent under Section 135(5) does not exceed ₹50 lakh, the requirement to constitute the CSR Committee under Section 135(1) does not apply. In that situation, the functions that would otherwise be performed by the CSR Committee are discharged by the Board of Directors.

This distinction is easy to miss. The ₹50 lakh figure is not an exemption from CSR itself. It is an exemption from constituting the committee for that situation. The company must still comply with the applicable CSR spending, policy, reporting, unspent-amount and Board responsibilities.

Step 4: check the Unspent CSR Account before concluding that no committee is needed

The 2022 amendment to Rule 3 added an important continuing-compliance rule. The current Rule 3 text states that a company having any amount in its Unspent Corporate Social Responsibility Account under Section 135(6) shall constitute a CSR Committee and comply with Section 135(2) to Section 135(6).

Practically, this means a finance or secretarial team should not stop at the current year’s ₹50 lakh test. It should also inspect whether the company is carrying an amount in the statutory Unspent CSR Account from an ongoing project. If such an amount exists, Rule 3 specifically requires a CSR Committee even though a simple reading of the current-year spend alone might otherwise suggest that the Board can discharge the committee functions.

Why the Unspent CSR Account matters

Section 135(6) applies to unspent amounts relating to an ongoing project. Such an amount is transferred within thirty days from the end of the financial year to a special account in a scheduled bank called the Unspent Corporate Social Responsibility Account. The company then has three financial years from the date of transfer to spend it in pursuance of its CSR obligation. If it remains unspent after that period, it must be transferred to a fund specified in Schedule VII within thirty days from completion of the third financial year.

Because an Unspent CSR Account represents an unfinished statutory CSR obligation, the Rule 3 committee requirement keeps formal oversight in place while that obligation remains outstanding.

Worked example: ₹40 lakh current obligation but an old unspent balance

Assume a company satisfies the Section 135 applicability test and its CSR amount to be spent for the current financial year is ₹40 lakh. If there were no other relevant facts, Section 135(9) would ordinarily allow the Board to discharge the CSR Committee’s functions because the required spend does not exceed ₹50 lakh.

Now assume the company also has ₹12 lakh standing in its Unspent CSR Account from an ongoing project of an earlier year. The Rule 3 proviso becomes material: the company has an amount in the Unspent CSR Account, so it should maintain or constitute the CSR Committee and comply with the specified Section 135 requirements. The ₹40 lakh current-year figure cannot be reviewed in isolation.

Practical decision framework

1. Test Section 135(1): check the immediately preceding financial year for the ₹500 crore net-worth, ₹1,000 crore turnover and ₹5 crore net-profit thresholds.
2. Calculate Section 135(5) spend: determine the statutory CSR obligation using the prescribed average-net-profit basis.
3. Check the ₹50 lakh line: if the amount to be spent exceeds ₹50 lakh, the committee requirement applies, subject to the Act and applicable exceptions.
4. If the amount is ₹50 lakh or less: Section 135(9) ordinarily allows the Board to perform the CSR Committee functions.
5. Inspect the Unspent CSR Account: if any amount is standing there under Section 135(6), apply the Rule 3 requirement to constitute the committee and continue the specified Section 135 compliance.
6. Document the conclusion: retain the threshold workings, CSR computation, bank/account status and Board or committee minutes supporting the governance route adopted.

Common mistakes

• Treating ₹50 lakh as a complete exemption from CSR rather than a committee-constitution exception.
• Checking only net worth, turnover and net profit without separately calculating the amount required to be spent.
• Dissolving or not constituting the CSR Committee merely because the current-year obligation is ₹50 lakh or less while an Unspent CSR Account balance still exists.
• Using accounting profit directly without checking the statutory net-profit basis relevant to Section 135.
• Failing to preserve a clear Board-level record showing why the company used the Board route or the CSR Committee route.

Practical takeaway

Use a three-layer test every year: first determine whether Section 135 applies, then calculate the amount required to be spent, and finally check the Unspent CSR Account. The ₹50 lakh rule can shift committee functions to the Board, but it does not remove CSR compliance, and an outstanding Unspent CSR Account can bring the committee requirement back into the picture. A short annual decision memo linking these three tests is a simple way to prevent governance mistakes.